Few Things That Nidhi Company Can Not Do as NBFC

Introduction

We are very much aware of what Nidhi company is, these are those companies whose core business is borrowing and lending money between their members. They are known by many other names like Permanent funds, Benefit Funds, Mutual benefit funds and, Mutual benefit companies. Recognized under section 406 of the companies’ act,2013. The Nidhi scheme is a beneficial central government scheme which aims at starting a business or company with less capital. There are several advantages to starting a company under this scheme but they are certain things which you cannot do if you start a company under this scheme. So if you are thinking of starting a Nidhi company then you must be aware of these restrictions which restrict or prohibit you from doing certain things. 

Objective of Nidhi Company

Nidhi companies are regulated by the ministry of corporate affairs with the help of RBI. The main objective of incorporating Nidhi company is to cultivate the habit of savings in the people. The Source of funding is the contribution from the members and no funding can be raised from outside. Nidhi company may look like an NBFC but they are completely two different financial institutions. Nidhi companies are managed and operated with the help of Nidhi Software. Almost all Nidhi companies in India carry out their day-to-day operation with the help of Nidhi CBS software as it makes the operations quite easy and smooth. 

Things Which Nidhi Companies Can Not Do 

As discussed already there are certain things which Nidhi companies are not allowed or restricted to do. Let us look at a few of these things.

1. Can Not Indulge in Any Other Business: As we have already discussed the core business of Nidhi company is borrowing and lending money to its members and they are not supposed to indulge in any other business apart from it. They have no right to undertake any other transaction other than the Nidhi scheme. All this means they cannot conduct a chit-fund business or hire leasing or purchase finance insurance of any kind. With the help of Nidhi software, not only day to day operations are managed but close monitoring of all the activities is done through it. 
2. Can Not Have Current Account: Since it is a mutual benefit company it is not allowed to start current accounts. 
3. No Advertisement: They are simply not allowed to advertise to gain deposits or get new members. Although they can advertise their money lending activities and this point has been discussed many times as it is misused many times.
4. Prefrence Share Capital or Debentures: Raising capital through preference share or debenture is not allowed, the only source of funding they can have is contributions from their members. Nidhi CBS Software keeps a close look at all the deposit and lending activities happening in the company and is very much capable of producing a summary at any point in time. 
5. Brokerage or Commisssion: They are not allowed to provide any incentive for mobilising deposits or brokerage for providing loans. 
6. Membership: They cannot take deposits other than their members, lending and deposit features are available only to members. 
7. Membership Fee: They are not allowed to charge any membership fee.
8. Membership Restrictions: A Nidhi company cannot add a corporate body as its members and they cannot take deposits from such institutions as well. 
9. Branches: They cannot open any subsidiary branch in India until there are profitable for three years in a row, although once they do managing these branches is easy with the help of Nidhi CBS software. Operations are carried out with the help of Nidhi software in most Nidhi companies.

Boundary: Nidhi companies work according to Nidhi rules,2014 and according to that they cannot open any branch outside India.